Financial statements for Sudbury companies

Filings include T4 slips, Schedule 1 and Schedule 50, with the statements and the T2 built from the same closed books.

Financial statement preparation for Sudbury companies follows CSRS 4200 and is quoted before the work starts.

Contracts that cross the year-end

Greater Sudbury’s mining supply and services cluster includes engineering firms, mine construction and contracting companies, fabricators and automation and communications specialists, and much of their work is done under contracts that run for months. At the year-end some of those contracts are part-built. If revenue is recognised only when invoiced, the costs of the work sit in one year and the revenue in the next, and the margin on the job is invisible in both.

Recognising revenue as the work is performed needs an estimate of how far each contract has progressed and what it will take to finish. That estimate is only as good as the job-cost records behind it. A company that codes labour, materials and subtrades to jobs through the year can produce it in an afternoon; one that does not is reconstructing it from memory. A loss expected on a contract is recognised when it becomes apparent, not deferred to the year the job finishes.

Equipment, financing and what the balance sheet says

A supplier or contractor in Sudbury often carries more equipment than its annual profit: trucks, service units, fabrication machinery, testing and survey gear. On the balance sheet those assets are shown at cost less accumulated amortization, and the loans and leases that financed them are split between the portion due within a year and the rest. A lender reading the statements looks first at that split, because it decides the working-capital ratio in the loan covenants.

Two things commonly go wrong. Equipment loans are shown entirely as long-term, which flatters working capital until the bank recalculates it. Or assets bought late in the year are missing because the invoice arrived after the books closed. We agree the fixed-asset register and the loan schedules to the lender’s statements before a draft goes out. CCA classes covers the tax side, which is calculated separately from book amortization.

Holdbacks and slow receivables

Construction work in Ontario is subject to statutory holdback, so part of each progress billing is earned but not yet collectible. On the statements, holdback receivable belongs with receivables and holdback payable to subtrades belongs with payables, both in the period the work happened. Separately, large industrial customers often pay on long terms. A Sudbury supplier can be profitable and still carry receivables that dwarf its cash. Presenting the aging clearly explains a cash position that would otherwise look inconsistent with the reported profit.

Customer concentration

A supplier that sells most of its output to two or three mining operations has concentration risk, and every serious reader knows it. That is a business characteristic, not an error. Where one customer is a significant share of revenue or receivables, saying so in a note is better than letting a lender or buyer discover it in diligence.

Shareholder balances and related companies

Owner-managed companies in Greater Sudbury often sit in small groups: an operating company, a company that owns the shop or the equipment, and sometimes a holding company. Rent and equipment charges between them, and amounts the owner has drawn or lent, all have to agree on both sides. A shareholder loan not repaid within one year after the company’s year-end is generally taxed as the owner’s income, so the balance is reviewed every year rather than carried forward. Shareholder loans explains the rule.

What a compilation covers, and what it does not

A CSRS 4200 compilation engagement assembles and presents information that management supplies. The accountant does not test the estimates, confirm the receivables or express an opinion. It is neither an audit nor a review, and the statements carry a report saying so. For most owner-managed Sudbury companies that is the right product. It stops being enough at a transaction: a larger credit facility, bonding at a higher limit, a customer that requires reviewed statements from its suppliers, or a sale. Deciding the level before the year-end beats revisiting closed periods. Compilation versus review sets out the difference.

Working with a remote CPA

EverStone is a fully virtual CPA firm. There is no Sudbury office. Sudbury engagements run by secure document exchange, video and e-signature, and the statements and the corporate return are prepared from the same closed books by the same CPA. Related pages: the Sudbury corporate tax page, and bookkeeping in Sudbury, which keeps the records current enough for any of this to work.

Where a lender or an agreement calls for assurance rather than a compilation, the next question is what readiness for that engagement involves.